The year 2021 was bittersweet for most people and businesses worldwide - Canada was no exception.
But just before you put whatever experience this year brought behind you, let us talk about your taxes for last year.
The 2021 tax season is here. From February 21, 2022, individuals and businesses are expected to begin filing for their taxes for the year 2021.
In a recent update, even the Canada Revenue Agency concluded that this would be "a tax season like no other."
It doesn't matter whether you are handling your taxes by yourself, employing an accountant's services, or using software solutions to navigate payroll tax calculations. It's good to be aware of the latest developments as regards your taxes. That is why in this post, we will be providing answers to six of the most asked questions about the 2021 tax season for business owners in Canada.
1 - Are business taxes delayed in 2021?
For the 2021 tax year, the deadline for filing taxes for most Canadian individuals is on April 30th, 2022.
A deadline extension is for those who are self-employed or those with a self-employed spouse/partner. The deadline for this category of people extends until June 15, 2022.
As of Feb 18th, 2022, there is no extension for the 2021 tax year announced by CRA.
2 - Do I get a tax break for owning a business?
Tax breaks are favourable tax treatments you get from the government. With tax breaks, your total liability is reduced, and this, in turn, decreases the amount of tax you will otherwise have to pay. Tax breaks can be in the form of tax deduction, tax credit, or tax exemption.
All in all, tax breaks change the whole tax system in a way that benefits you. So, the answer is an emphatic YES! As a business owner in Canada, there are several potential tax deductions and tax credits you could benefit from. Utilizing these avenues will reduce the amount of income tax you will have to pay.
As a business owner in Canada, there are several potential tax deductions and tax credits you could benefit from.
3 - What expenses can I write-off for my dispensary for the 2021 tax season?
Here are some of the income tax deductions you could make use of as a business owner:
Home Business Tax Deductions:
If you operate your business from home, these are some of the expenses that may be written off during the tax season. You might not benefit from all of it, so talk to your accountant about the benefits you qualify for.
- Home-Based Business Insurance.
- Mortgage Interest
- Property Taxes
- Office supplies
- Utility bills
- Vehicle expenses
- Repairs and maintenance
Tax deductions are not for those with home offices alone. If your business has its own space, you can also get some tax breaks on some levels. These include:
Health and Dental Insurance Premiums:
If your business offers health insurance to all employees, then your private health services plan premiums qualify as deductible expenses.
Business Startup Costs:
All expenses and expenditures incurred during the preparatory phase before officially launching the business constitute startup costs. You can get some tax breaks for some of this cost.
Investment Tax Credit:
Although there are eligibility rules and your business location matters, you can also get some tax breaks here. Some type of properties your business acquires are tax-deductible. You can also get tax breaks on some of the expenditures your business acquired right on top of the taxes you owe.
Apprenticeship Job Creation Tax Credit:
Hiring a trade intern or apprentice who is in the first two years of the apprenticeship program can get you an Investment Tax Credit of up to $2,000. What this means is that at a reduced rate, you can get some skilled help on board. What a good opportunity!
Research and Development Tax Credit:
Whether as a sole proprietor or partner, your business can benefit from tax break through the scientific research and experimental development tax credit. Another great thing about this is that your business will be refunded even if you don't make any profit.
Hiring Family Members:
Your payroll is a business expense; therefore, it is tax-deductible. An added advantage is that you can do some income splitting when you employ your child, spouse, or other close family members. This allows you to be in a lower tax bracket where you can get better tax breaks.
Allowable Reserves:
As a business owner, it is customary to set aside some funds for contingencies. According to the CRA's Business and Professional Income Guide, this can be deducted as long as the amount is reasonable and the Income Tax Act allows it.
Vehicle Expenses:
There are several vehicle expenses you can claim. These include; insurance, fuel and oil, toll charges, capital cost, parking fees, lease payments, repair and maintenance, and registration fees.
Making claims for vehicle expenses depends on how much you use them for business purposes and personal errands. This is why the CRA requires that you maintain an accurate logbook to verify these claims.
Meals and Social Expenses:
These expenses accrued from companies' social and sporting events, parties or dinner are tax-deductible. Also, you get a tax break on 50% of the amount spent on meals and entertainment. Keep receipts.
Eligible Charitable Donations:
You can claim a tax credit on eligible charitable gifts or amount that your company gives out to any registered Canadian charity. Tax credits can be claimed on these amounts or donations up to five tax years in the future or in the same tax year that you made them.
4 - What has changed for the 2021 tax season?
The air is still not fully clear from the coronavirus pandemic situation. The Fifth wave is just dying down, and social distancing is still in place, and the economy is yet to bounce back fully.
To this effect, the CRA has made some changes for the 2021 tax season. Some of these changes include:
Charlie the Chatbot:
This is the official CRA chatbot that can help you get information when you need it. With it, you can get answers to general tax filing questions. The technology is still on the learning curve, so Charlie's questions will provide it more knowledge base and help it become more interactive.
CRA processing time tool:
This new tool gives you a targeted time frame for your request to be answered. You can use it by simply clicking right here.
Canada Training Credit Limit:
If you are a worker between the ages of 25 to 65, you can accumulate $250 a year as training credit. This is provided you meet some specific conditions. 50% of eligible tuition and fees paid to an educational institution in Canada can be claimed as a training credit equal to your credit limit for the year.
Tax rates and limits: due to inflation, there has been an upward review of some tax rates. These include:
- Federal and provincial income tax brackets.
- Employment Insurance (EI) premiums remained steady at 1.58% in 2022. Although, there is an increase in maximum insurable earnings from $56,300 to $60,300.
- Maximum pensionable earnings is increasing to $64,900 in 2022, from $61,600 in 2021. Also, the employee and employer contribution rates for 2022 will be increasing to 5.70%, from 5.45% in 2021.
- Canada Child Benefit is also on the rise. The maximum a parent can receive in 2022 is now $6,833 for children under age 6 and $5,765 for children ages 6 to 17.
Basic Personal Amount: This is a non-refundable tax credit that all taxpayers are eligible to claim. It is the amount you can earn without paying any income tax. The amount is $14,398 for 2022.
Canadians earning more than $155,625 tax bracket will have the amount reduced.
Tax Breaks for Seniors:
The Old Age Security (OAS) has been increased for seniors older than 75 years of age and earning less than $79,054. If you fall into this category, you'll have to pay an increase of 10% as of July 2022.
Tax Breaks for Parent:
Since 2020, any maternity or parental benefits received through EI is tax-exempt at the source. For this year, this means an extra $1,800 if you receive EI benefits and earn $45,000 a year. The Child Disability Benefit and Canada Child Benefit are also slated for an increase.
5 - How will the government relief program affect my taxes?
(CERB, CEWS, CEBA, and TWS)
If, like many other Canadians, you received benefits from the government as part of the Covid-19 relief program, you have to report the amounts you received on your 2021 tax return. The amounts reportable are:
- Canada Emergency Response Benefit (CERB)
- Canada Emergency Student Benefit (CESB)
- Canada Recovery Benefit (CRB)
- Canada Recovery Sickness Benefit (CRSB)
- Canada Recovery Caregiving Benefit (CRCB)
All these are considered as taxable incomes and should be reported appropriately. So, you can either owe tax or not or be entitled to a refund when filing your return. It all depends on how much income you earned from all sources and deductions and credits you are entitled to claim in 2021.
For all the above benefits, you will have to enter on your return the total of the amounts you received.
The CRA will send you via mail a T4A (for benefits issued by the CRA) and/or a T4E (for benefits issued by Service Canada) tax slip with the information you need for your return. You can also view tax slips online on your CRA's My Account.
The CRA further explains that "if you received the CERB or CESB, no tax was withheld when payments were issued. If you received the CRB, CRSB, or CRCB, 10% tax was withheld at source.
If your income is normally exempt from tax, your COVID-19 benefits may also be exempt from tax. If you received CRB, CRSB or CRCB payments in 2021, you could claim a refund of the 10% tax (5% for Quebec residents) that was withheld on these payments by filing a 2021 tax return.
6 - When do I need to file my taxes as a business owner in Canada?
The 2021 tax season officially begins on February 21, 2022. This is the date on which the Canada Revenue Agency will start accepting electronically submitted income-tax returns.
The deadline for filing your income tax is April 30, 2022. However, for self-employed taxpayers (including their spouse or partner), they have until June 15, 2022.
Again, we advise you should do it now and avoid the penalties for late filing. You can prevent any delay in tax assessment or late release of refund, benefits, and tax credits by filing early.
You can have the best tax year so far.
The tax season can be overwhelming for many individuals and businesses. So, many people tend to use tax return software. This is the best thing to do and getting the right one can make all the difference.
Push offers you all you need to make the 2021 tax season as effortless as possible. With KayaPush software solutions, you get the following benefits:
- Automation of everything tax-related
- Calculation of all statutory holiday pay
- Advanced and automated Record of Employee (ROE)
- Employee access and automation
- An integrated system for taxes, payroll, and employee tracking and schedule.
If you want to learn more about payroll in general, download our free guide on how to navigate payroll for your Canadian cannabis dispensary!
